US Cellular 2012 Annual Report Download - page 54

United States Cellular Corporation
Notes to the Consolidated Financial Statements (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
reducing revenues at the time of the wireless device sale to the agent rather than at the time the agent
activates a new customer or retains a current customer. Similarly, U.S. Cellular offers certain wireless
device sales rebates and incentives to its retail customers and records the revenue net of the
corresponding rebate or incentive. The total potential rebates and incentives are reduced by U.S.
Cellular’s estimate of rebates that will not be redeemed by customers based on historical experience of
such redemptions.
Prior to July 1, 2012, U.S. Cellular charged a service activation fee to customers. Activation fees charged
at agent locations with the sale of service only, where U.S. Cellular did not sell a wireless device to the
customer, were deferred and recognized over the average customer life. On July 1, 2012, U.S. Cellular
discontinued the service activation fee and began charging a device activation fee. Device activation fees
charged at agent locations, where U.S. Cellular does not also sell a wireless device to the customer, are
deferred and recognized over the average device life. Device activation fees charged as a result of
handset sales at Company-owned retail stores are recognized at the time the handset is delivered to the
customer. GAAP requires that activation fees charged with the sale of equipment and service be
allocated to the equipment and service based upon the relative selling prices of each item. This generally
results in the recognition of the activation fee as additional wireless device revenue at the time of sale.
ETC revenues recognized in the reporting period represent the amounts which U.S. Cellular is entitled to
receive for such period, as determined and approved in connection with U.S. Cellular’s designation as an
ETC in various states.
Amounts Collected from Customers and Remitted to Governmental Authorities
U.S. Cellular records amounts collected from customers and remitted to governmental authorities net
within a tax liability account if the tax is assessed upon the customer and U.S. Cellular merely acts as an
agent in collecting the tax on behalf of the imposing governmental authority. If the tax is assessed upon
U.S. Cellular, then amounts collected from customers as recovery of the tax are recorded in Service
revenues and amounts remitted to governmental authorities are recorded in Selling, general and
administrative expenses in the Consolidated Statement of Operations. The amounts recorded gross in
revenues that are billed to customers and remitted to governmental authorities totaled $135.7 million,
$125.2 million and $137.6 million for 2012, 2011 and 2010, respectively.
Advertising Costs
U.S. Cellular expenses advertising costs as incurred. Advertising costs totaled $227.0 million,
$257.8 million and $265.2 million in 2012, 2011 and 2010, respectively.
Income Taxes
U.S. Cellular is included in a consolidated federal income tax return with other members of the TDS
consolidated group. TDS and U.S. Cellular are parties to a Tax Allocation Agreement which provides that
U.S. Cellular and its subsidiaries be included with the TDS affiliated group in a consolidated federal
income tax return and in state income or franchise tax returns in certain situations. For financial
statement purposes, U.S. Cellular and its subsidiaries calculate their income, income taxes and credits as
if they comprised a separate affiliated group. Under the Tax Allocation Agreement, U.S. Cellular remits its
applicable income tax payments to TDS. U.S. Cellular had a tax payable balance with TDS of $1.1 million
and a tax receivable balance of $73.7 million as of December 31, 2012 and 2011, respectively.
Deferred taxes are computed using the liability method, whereby deferred tax assets are recognized for
future deductible temporary differences and operating loss carryforwards, and deferred tax liabilities are
recognized for future taxable temporary differences. Both deferred tax assets and liabilities are measured
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